Improving cash flow helps any small business plan for the future rather than simply living from day to day — spending money as it comes in and hoping for better the next day. When you know when funds are arriving, see them as quickly as possible, and plan for expenditures, you'll be able to de-stress your business activities and start planning ahead.
So, how can you improve the cash flow in your own business venture? Here are five key ways.
1. Invoice Early and Often.
You won't receive payment if you don't ask for it. Does your company make every effort to bill customers as soon as their goods or services are received? Do you send progress invoices? Do you ask for down payments? Do you schedule time to create invoices daily rather than weekly? Invoicing can be a challenge to fit into your schedule, but it's the first step in getting paid.
2. Incentivize Promptness.
Encourage customers to pay in advance, at the time of purchase, or within a few days by offering them an incentive to do so. Monetary rewards like early payment discounts, cash discounts, or prepayment discounts can motivate a percentage of buyers to speed up their payments. Combine this with late payment reminders and penalties.
3. Keep Costing Accurate.
If you aren't bringing in enough money to make ends meet, your profit margin may be the problem. Costing is the method of analyzing how much you actually spend either on a single job or on a production run. Job (or process) costing can be detailed — as it needs to capture even the less obvious related costs — but it will tell you if you need to raise prices, find different suppliers, or alter the method you use to do a task.
4. Look at Overhead.
Overhead expenses are those that don't specifically contribute to the production of goods or services. This includes things like office supplies, administrative salaries, marketing, or website maintenance. If you can lower any of these overhead costs, you'll have fewer expenses to cover between customer payments.
5. Schedule Payables.
Incoming funds are only half of the cash flow puzzle. The other half is what you pay to others (accounts payable). Do you track invoices for payment before they are due? Do you have a set weekly payment schedule, planning ahead what will be included and what won't? Can you time these payments to avoid other obligations, such as payroll or tax remittances? The more control you take over what goes out and when, the more you'll be able to plan ahead.
The work of improving cash flow takes time and diligence. But it yields long-term rewards that will keep your business healthy for years to come. Start your journey today by meeting with a business accounting service in your area.Share